Warren Buffett Is Out

What does Warren Buffett’s departure from the CEO role of Berkshire signal, who is the new person at the helm, what are his first moves, and what could all this mean?

Because while the leadership transition may have been smooth, as we will see today, the bet currently being played at Berkshire is enormous. It is the end of an era and the beginning of a new one, with different challenges and opportunities.

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BUFFETT’S DEPARTURE

Warren Buffett, officially now 95 years old, has stepped down from the CEO position after six decades at the helm of Berkshire. The man who started with a failing textile company and turned it into one of the most successful investment vehicles in history is passing the baton. His investment philosophy has left an indelible mark on how we all invest to this day.

The new CEO of Berkshire is Greg Abel. A Canadian accountant with a background in energy, he has held a leadership role at Berkshire Hathaway Energy since 1999. He is the person who ran the company’s energy arm, upgraded it, and is now called upon to manage everything. From the operating subsidiaries to the massive investment portfolio.

Abel’s philosophy does not differ much from Buffett’s. He himself stated at the company’s annual meeting: “We will remain Berkshire. The way capital has been allocated over the past 60 years will not change.” And yet, investors are worried. And they are not wrong.

From the moment Buffett’s departure was announced, Berkshire’s share price fell by 7 percent, while the S&P 500 rose by 20 percent. What analysts call a “succession discount.” A natural decline driven by fear about the future. And on the first trading day with the new CEO, the stock fell by more than 1 percent. The message is clear. The market is waiting for proof.

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THE PORTFOLIO MANAGER

One of the biggest questions is who will now manage Berkshire’s massive equity portfolio, worth more than 300 billion dollars.

The answer is Ted Weschler. After Todd Combs left to join JPMorgan to lead a new strategic investment unit, Weschler remains alone at the helm of the portfolio. And this creates both new expectations and new concerns.

A low profile manager who managed to turn a 70,000 dollar IRA into 221 million dollars. Yet since joining Berkshire, his returns have slightly lagged the S&P. His picks include stocks like DaVita, which has been flat over the past five years, and Sirius XM, which has lost two thirds of its value. Not the most impressive track record, is it?

There have also been successes, with the most notable being Alphabet, where a significant position was added in 2023.

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THE POWER OF CASH

And here we come to perhaps Berkshire’s greatest strength right now, its enormous cash pile. More than 350 billion dollars in cash and short term government bonds. Yes, you heard that right. The number is larger than the GDP of many countries.

This amount is larger than the entire equity portfolio. And as Buffett himself has said, this money will not be deployed gradually. No. It will be used all at once in the event of a crisis. When everyone is afraid, Berkshire will be buying. Just as it did in 2008 with Goldman Sachs and Bank of America. When everyone was running away, Buffett was writing checks. And today, Greg Abel holds that nuclear option in his hands.

He has stated that he does not intend to change this strategy. And personally, I believe he will honor it. Because in times of turmoil, cash is king. And Berkshire wears the biggest crown.

And which stocks has Abel set his sights on? Well, Abel appears to have three very specific choices on his radar:

• Occidental Petroleum: Berkshire already owns 27 percent of the company. With an energy background, Abel could even move toward a full acquisition, something that would give even greater autonomy to Berkshire’s energy strategy.

• Alphabet: As mentioned, it is already in the portfolio. And with Abel’s philosophy being more favorable toward technology, the position could increase. It is a company with stable profitability, monopoly like characteristics, and massive investments in AI.

• Digital Realty Trust: A REIT with more than 300 data centers and giant clients such as Microsoft and Amazon. With stable income, a 3.1 percent dividend yield, and growth potential as interest rates fall. Technology needs infrastructure, and Berkshire sees that clearly.

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INVESTMENT OUTLOOK

And if all this feels like a lot, remember that Warren Buffett remains chairman of the board and retains 30 percent of the voting power. He has not left entirely. He is simply giving space to the next generation.

And as he himself said: “Greg understands businesses extremely well. And if you understand businesses, you understand stocks.”

In my view, Buffett would not leave Berkshire’s succession to chance. He has prepared the ground for years. He has chosen people, built culture, and organized a system that can survive even without him. Now it remains to be seen how the new CEO will act in practice.